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- [00:00]
Will Smith
Today's guest was drawn to construction. He and his wife had acquired a nice portfolio of real estate on the side. So when Jan Roll saw a big and established residential construction business on BizBuySell, he jumped at it. Now you already know that construction businesses are tough, particularly residential ones. Cyclical, project based, high ticket, discretionary. So one of the first things we discuss in today's interview is why Jan liked this business in spite of those characteristics. One answer how else are you going to acquire 1.2 million of SDE for 3.5x? And Yan did experience that cyclicality in year one of his ownership, when sales dropped 25% because it was an election year, who knew? He was hit with other major challenges too. A lawsuit between him and his partner in the acquisition that cost him $120,000. Waiting months for the state of Georgia to issue a necessary license. The Learning Curve General contracting requires knowledge of 30 trades, so it has been a harrowing journey. One giant ambiguous ball of Figure it out, as he puts it. More than half of weekends for the first year, Jan worked Saturdays and Sundays. Some nights he'd wake up at 4am two hours before his alarm, breathless to get to work. But happily, he is on the other side of most of that now. He waited to do this interview until he was the business is stabilized and growing again. When Jan took over Victoria Renovations, its pipeline of business was one and a half million. Today the pipeline is almost double that. So despite the turmoil of the last 21 months, you'll notice that Jan's demeanor is upbeat in spite of the challenges. I do wake up every day energized in the business. All the rosiness that I kind of went into the transaction with has come true, says Jan. It just took a little bit longer to get there. Please enjoy this interview with Yon Roll, owner of Victoria Renovations. As you know, entrepreneurship through acquisition and franchising play very well together, especially if you're looking to build a portfolio of businesses. This Thursday is a webinar called Anatomy of a Franchise Holdco Connor Gross will cover topics like single brand rollups versus Multi brand portfolios industries with the most opportunity in franchising franchise acquisitions, the sourcing, the diligence, the integration, case studies and more. It is this Thursday, May 1, noon Eastern Register at the link in today's show notes or on the Acquiring Minds.
- [02:57]
Connor Gross
Homepage Acquiringminds co. Connor did a webinar.
- [03:02]
Will Smith
With us last summer that was very popular. I have no doubt this one will be as well. Also, if you haven't checked out our new sister pod, the Mind's Capital podcast. We're now up to episode 11. The Mind's Capital pod is a weekly show focused on independent sponsors. As you know, the independent sponsor format of buying businesses is quite different than that of search. Bigger businesses, more outside capital, higher expectations from investors. But for some searchers, it's where their business buying careers might take them. A number of our guests on the Mind's Capital Pod, like last week's Nick Hashka, who's been on Acquiring Minds a.
- [03:45]
Connor Gross
Few times, are examples of exactly this.
- [03:48]
Will Smith
Started as searchers, now independent sponsors. So come learn about the next tier of buying businesses through the case studies and practitioners of independent sponsorship. The show is called Minds Capital podcast. It's on YouTube and Spotify and Apple. Every Wednesday a new episode drops.
- [04:10]
Connor Gross
Please check it out.
- [04:21]
Will Smith
Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs, and on this podcast I talk to the people who do it. You know that one of the most common levers to pull in a target acquisition is technology updating the systems of a business that may still be running off a spreadsheet or even pen and paper. But tech is complicated with tons of solutions out there. So choosing the right cloud platform, CRM, telephony, compliance and cybersecurity, not to mention implementing all that, is a job in itself. Acquiring Minds guest Nick Akers knows this firsthand. As a former searcher who now owns Inso Technologies, Nick has seen the tech challenges searchers face when acquiring businesses. His team at Inzo regularly works with searchers and their acquisitions, offering a complimentary IT audit of the target company. Nick takes a personal interest in all their searcher clients, drawing from his own experience in the search phase. Enzo dates back to 1989, so this is a company that has managed the tech for hundreds of small businesses over decades. And one last thing, no long term contracts with Enzo, a big differentiator. Check out inzotechnologies.com I N Z O or email Nick directly@nickzotechnologies.com and don't forget to tell them you're a searcher. Yon roll.
- [05:59]
Connor Gross
Welcome to Acquiring Minds.
- [06:01]
Jan Roll
Good afternoon Will.
- [06:02]
Connor Gross
Glad to be here, Jan. We are talking at a moment of relative calm.
- [06:09]
Will Smith
In your life as owner of a.
- [06:10]
Connor Gross
Business that you bought, but it has been tumultuous getting here. We are going to hear the twists and turns and what you've learned along the way.
- [06:21]
Will Smith
Start us off, Jan. How was it.
- [06:23]
Connor Gross
That you set your eyes on buying a Business in the first place.
- [06:28]
Jan Roll
Well, you know, it kind of, to be honest, came out of the blue, you know, to seriously consider buying a business. I think, you know, like five years ago, my brother in law had introduced me to Biz Buy, Sell. And I kind of went on there and looked at it and said, oh, this is pretty neat. You know, you got to be crazy to do this. And then kind of moved on with my corporate job. You know, just a background, you know, I've been 25 years in banking. I had worked up in New York for Merrill lynch, lived through the financial crisis, lived through the failure of that bank, moved to Atlanta to work for Truist in 2014. And then, you know, having lived through one merger, when they got, you know, when SunTrust and BB&T decided to merge, I kind of skipped over to SVB bank and SVP being Silicon Valley Bank. So I had the pleasure of working for two failed banking institutions. And I think it was after going through that the second time, I actually did leave a year before that. They had failed, but the stresses were already apparent by that time. I, you know, went back to Truist and just kind of felt like, you know, rehashing old ground, going back to a company I'd already worked for. I didn't really have the energy. I didn't, I really wasn't into it anymore. And actually I was reintroduced to Biz by Sell because one of the managers who worked for me at SVB when I left was said, hey, I'm going to do this. And he had, you know, he had gotten the, the Buy Then Build book and we were just talking about it and that's when I didn't really seriously consider it until I read that book and, you know, kind of went down the rabbit hole learning about how to do it.
- [08:01]
Connor Gross
That's Dan, right?
- [08:02]
Jan Roll
That's Dan, yep. Dan Burnside.
- [08:04]
Connor Gross
Dan Burnside, who, who may or may not appear in the, in the seat one of these days, but you've connected me with him, so we're in touch. Okay, so how did you get serious about it now that it's kind of at least back on your radar?
- [08:18]
Jan Roll
Yeah, I mean, I guess from the small business standpoint because, you know, I'd always worked for s and P500 companies, always big corporate bureaucracies. You know, somewhere around 2019, I know I started investing in real estate, you know, created an llc, figured out how to get the accounting done, and I started buying properties, you know, doing the taxes, fixing them up. And it was really fun. I really enjoyed It. And so I felt like I had already kind of dipped my toe in, at least the, I guess, the corporate structure part. And, you know, that was just me and my wife kind of doing it on the side as, you know, you know, sort of, you know, the gig economy. But, you know, during COVID we cashed out, you know, all the equity in our home, and I bought like five more properties. So it actually had become, you know, fairly substantial. We had six properties. So I kind of felt like I, you know, why don't I. I felt like I had a little bit of experience from that, but obviously it wasn't. You know, I had my experience with employee management for my corporate world, and then I had the experience on the real estate and in, you know, fixing up properties from this LLC that I had created. And, you know, when I started looking at Biz Buy sell, I kind of came across the home remodeling company in Atlanta, you know, close to where I lived. You know, big metro Atlanta's growing. And, you know, this, like, this was one of the things that really struck me of all of the things that I had looked at as like, you know, this kind of dovetailed with my interests and, you know, some limited experience I had on the real estate side.
- [09:50]
Connor Gross
So you were keeping your eye on Biz By Sell, but you were not what we would call like a full time searcher, or were you?
- [09:56]
Jan Roll
I was not a full time searcher. I. I'm trying to think. I think I had reached out to a couple brokers on a couple other instances, but it was really more to get my feet wet. You know, I guess some of in the literature kind of said, like, don't wait too long. You could search for years and just look. And so. But this did come around pretty fast. So if I think I was really started to seriously look on Biz Buy Sell and reach out to people and say like, October, November of 2022, and this one came across my desk in January 2023. So it was a fairly quick, you know, find and then kind of, you know, full guns going down, you know, signing the letter of intent and doing the due diligence, which happened in basically the, you know, the first quarter of 2023.
- [10:43]
Connor Gross
But you were committed to buying a business in those months. So you were searching, if only part time and still in corporate, you st.
- [10:51]
Jan Roll
I. I think that I was in the. Not until I found this business, though, did it really kind of crystallize that. Okay, I want to do this. In the beginning it was like, you know, but When I found this business, I was really excited about it. And then I, I, you know, when I started going down the rabbit hole, convince my wife that this was something that she also wanted to do as well. And you know, you know, because it did involve, you know, quitting, you know, basically walking out of my, of my course corporate job. So.
- [11:18]
Connor Gross
Great. Okay, well, that's a little bit unusual usually, I guess I'd say if I had to generalize. People decide they're going to buy a business no matter what it is. I mean, not no matter what it is, but they're less, it's less about finding a business that they kind of really turns them on and that they fall in love with and more about just committing. Okay, I'm going to go down this path and then hopefully they do find a business that excites them. But in your case, it was kind of, you were kind of, you know, what we might call a part time light searcher. But it got real because you really, you saw a listing that really got you excited. So, so you were really pulled along by the quick discovery of this. We're going to hear about Victoria Renovations.
- [12:01]
Will Smith
Victorian renovations or Victoria, Victoria Renovations.
- [12:05]
Jan Roll
Yeah. Did you, were you probably searched for longer if I hadn't, you know, come up with, you know, so quickly found a business that I really liked.
- [12:12]
Connor Gross
Well, let's hear about that business. What, what, other than your kind of interest in real estate and what did you like so much about Victoria Renovations?
- [12:20]
Jan Roll
I think that other than kind of in an area that I was interested in and it had, you know, some light experience, what really attracted to me the business was as I got to meet the previous owner and talk to him, was just the organization and structure that he had put around it. Obviously, you know, in a small business you kind of expect things not to be written down or there to be kind of like institutional knowledge that, you know, with no formal structure around it. But he had had, you know, project accounting, which is very difficult to do. Every project has, you know, category. You know, he had, he did very in depth where he attributed, you know, people's time and all the invoicing to different categories, compared it back to, you know, the original estimates he had. You know, one of the things that shocked me is that he had had an employee handbook manual for a company with 10 employees. He had like a 40 page handbook. And so that was part of it. That gave me the comfort that, okay, you know, there's a little bit of rhyme to the reason. There's some structure to the business. You Know, and I, you know, obviously, I'm coming away from a corporate bureaucracy. I didn't want bureaucracy. But it was good to know that, you know, there were. There were some guardrails that had already been created and structured in the company.
- [13:31]
Connor Gross
Yeah, yeah. And how big was the company? Give us some. Some data points, if you would. Sure. Yeah.
- [13:36]
Jan Roll
It was about. Well, there's about 10 people, which was, you know, six field staff, you know, project managers that are on site on people's homes, running projects. And then, you know, the sales and office staff was. Was about four people. He had done 6 million in business two consecutive years. I mean, those were, you know, during COVID and with a 0% interest rate. So, you know, that we'll get to, you know, h. What translated after I bought the business, you know, he had done about 60 projects a year, on average, $100,000 a project. And, you know, two thirds of the business came from referrals, which was also a good sign that there was. There was organic. There was just organic lead generation from. From the year. So, you know, because, you know, obviously I'm buying a business when we ultimately didn't have a lot of hard assets in the business. There were a couple, you know, company vans, and there were some. Some office equipment. But generally, I'm buying the goodwill. I mean, on the balance sheet shows a giant number of goodwill. And so it was important that, you know, you know, the goodwill that you're buying is. Is basically the future lead generation.
- [14:44]
Connor Gross
What does the company do? Exactly?
- [14:47]
Jan Roll
Sure. So we're doing residential remodels. So it could be, you know, I think on the small end could be just a master bath remodeled. That's probably the smallest that we would go. We have a 50. It was a 50,000 minimum. Now 75,000 minimum. But generally they're larger remodels where we're doing a whole basement, we're doing an addition. Sometimes there's a whole house remodel where we're just gutting everything, replacing, you know, you know, everything except the, you know, the core framing and adding on to it. So it's, you know, kitchens, bathrooms, additions and the like. And they run, you know, the project sizes run on the low end, 50 to 75, and on the high end, as high as, you know, 800, 900,000.
- [15:26]
Connor Gross
So are you subbing out most of the actual construction? Because six field staff doesn't sound like a lot to be doing 60 projects a year.
- [15:33]
Jan Roll
Yes. Yeah. So. So yes, we. So it's a question that we get asked from clients all of the time, which is, do, you know. So there are companies that will, you know, sub out, but they'll use different subs. So we've used the same subs. And a lot of the subs have been with the company for 10 to 15 years. And they get a majority of their work from, from Victoria Renovations. And that allows us to kind of control the quality and it gives us sort of leverage when something goes wrong that we can, you know, bring back the company and that they'll fix it and do it right. So, you know, our plumber has been with us for 15 years, does every single one of our jobs. And, and, you know, and I think I'm, you know, when you talk about the goodwill that I was purchasing, I was also purchasing these long standing relationships and company practices and how they, and how put, you know, how, how we interact with these other companies. I mean, one of the things I think I underestimated is just how many different trades are involved in something like a home remodel. You know, I have like 25 to 30 different, you know, subcontractors. Some of them are core like electrical and plumbing, framing. But, you know, some of them that could be, you know, a little more ancillary that you only come up with once, you know, stucco repair or, you know, things like that which are, don't, don't happen for every project. But yeah, so the field staff are basically there to interact with the client, manage the process as it relates to organizing the subcontractors, overseeing their work and making sure that it meets our high standards for renovation. And then, you know, the field staff, do, you know, some of the internal car hanging doors, windows, trim, carpentry is also done in house. And we, we do build some cabinets as well.
- [17:13]
Connor Gross
Okay. And by, by managing the process, I hate to nitpick like this, but do you also mean managing the project? These are PMs, essentially.
- [17:23]
Jan Roll
They're. Yeah, yeah.
- [17:24]
Connor Gross
Okay, right there.
- [17:24]
Jan Roll
PMs.
- [17:25]
Connor Gross
Great. And the. So how profitable is a $6 million business doing renovations in the Atlanta market? Residential renovations in the Atlanta market. Yeah.
- [17:34]
Jan Roll
So. So, you know, when I was looking at the financials, the, the flow through to the bottom line to the sde, you know, in the terminology of this audience, was about 20%. So there was about $1.2 million in, in, in SDE that the, that the previous owner had done in, I think, the previous two years. And that was up, I think, just a little bit from, you know, the pre Covid where he was doing about four and a half, but still was doing about 20%. I think one of the things that also attracted me to the business is when I looked at the accounting and the project, by project accounting, it was very, there was, there was very little deviation. You know, it was basically making 35 to 40% gross on a project and then 20 net of SGA, you know, after you pay payroll and expenses went down to about 20, 20%, so about 1.2 million.
- [18:27]
Connor Gross
When you say you liked that, what did you like about that? That seemed.
- [18:31]
Jan Roll
I like that, that it was proof that the process that he had put in as it relates to estimating and then tracking the actual expenses against the estimates that it was very precise. You know, and I think they're, you know, any, any, any project can have hundreds of line items of, of work that we're doing. And I think there is, and I, you know, learned after the fact that there is a lot of opportunity to, to misestimate what something's going to cost.
- [18:59]
Connor Gross
Yeah.
- [19:00]
Jan Roll
And, but you know, he, there was a pretty good mousetrap in place to make sure that, you know, those mistakes were limited.
- [19:09]
Connor Gross
Yeah. Jan, one of the things about. So this is a construction business, pure construction really. And we are often worried about the quality of revenue in such a business. Highly cyclical, among other reasons. And you already kind of touched on that by noting the, the low interest rates when you bought the business and that he had really, really strong years as a consequence of that. Interest rates are now quite a bit higher. How did you think about. And of course it's project based. So the, the predictability of the revenue isn't what it could be. Although it sounds like this business is so established and you have such strong lead flow that there's probably some predictability to it or some consistency to it year over year. Anyway, address that quality of revenue in a construction, residential construction business.
- [19:57]
Jan Roll
Yeah, well, you know, when I, so I guess there was twofold. One was what was the, the margin of safety that I had when I bought the business. So when I had kind of run the financials and that part, you know, in banking, you know, doing financial modeling is something that I'm experienced at. You know, I basically said, hey, you know, this business can go down by one third. And even with the 90% SBA loan that I took out to buy the business that, you know, we could still, you know, chin the bar. And, and then it was also just the, the quality of the referral network and also of the, the website, you know, so the website for this business was hands better than anything else that I had seen locally at competitors like you know, we basically after any client who wants professional photos done of their remodel will pay a professional photographer to go take photos and then we'll put it on the website. So there are hundreds, hundreds of basements on there and they're all super high quality. And so you know there was proof in the pudding that you know, I could, you know a, as a consumer I was attracted to the website. And then you know, it was also proof of the financials. And the other thing that kind of came out during the due diligence phase was just how much business the seller was kind of turning away. You know, it was too far for him. You know, an addition requires, you know, a lot of in the permitting side and can be a little more complicated. And you know, obviously, you know somebody who's been doing it for 25 years who's now looking to move on is, is, is not going to be as engaged as, as I am as a new owner who first coming in. So there was also that instance of you know, the, the, the thorny deals or a client that he felt, you know, there were some times where you know, it was just that client is going to be a pain. So I'm, I'm just not going, I'm gonna, I'm gonna price this one really high because I don't want the business. And so it did on the face of it look like, you know, he had more business than he could handle.
- [21:57]
Connor Gross
Great. So demand is, is in evidence and you're feeling like with your new energy as a new hungry owner that you can just, you can take some of those jobs and quickly grow revenue.
- [22:11]
Will Smith
The team at Aspen HR recently published a short white paper targeted at searchers Entitled A New CEO's Guide to Human Resources. It lays out the key items you should be thinking about as you transition into CEO and owner of the business you bought. The link to download it is in the show notes. Aspen is a professional employer organization or PEO run by a searcher for searchers. Search fund veteran Mark Sinatra runs the company which provides HR compliance, flawless payroll, Fortune 500 caliber benefits and HR due diligence support for your acquisition. All for a fraction of the cost. Go to aspenhr.com or contact Mark directly at Mark aspen hr.com yeah but yeah.
- [23:03]
Jan Roll
Again you know I had done in the literature I did understand that you know, buying a project based business comes with its risks. I will say, you know and there are structural reasons, you know, post Covid interest rates going up election year which was like basically last year. But those are all headwinds that we had experienced in that, you know, I would say my first year owning the business, but the deal flow still came through. There were still a lot of, a lot of meetings. It certainly picked up substantially in the last six months. And so I will say that the, the strength of the referrals and of the past projects has, has borne out. You know, it's amazing. There are some cul de sacs where we've done, you know, five, five basements in a cul de sac because of, of the, of the strength of the referral.
- [23:50]
Connor Gross
Wow.
- [23:51]
Jan Roll
And also, you know, just this industry, there is a significant lack of trust that a client has with a contractor. You hear a lot of horror stories.
- [24:00]
Connor Gross
Yep.
- [24:01]
Jan Roll
You know, my contractor was here for a year and you know, and so like, you know, one of the things I've brought to the business, a little bit more transparency and. But I, in spite of that, I'm still sometimes shocked about the level of distrust sometimes between a client and a contractor. And I have a saying now where I tell a client, you know, when they're kind of becoming, you know, sort of torn up in their head that I'm still getting used to the lack of trust in this business, you know, and that's basically me telling them that like, you know, chill out, like we're going to take care of it and we're going to, we're going to make right.
- [24:35]
Connor Gross
Well, it is an example of that. I feel that way about contractors, not you, of course, Jan, but I have that reflex as well. Having gone through my own experiences, it does seem kind of universal. One of the other things we hear about Jan in Construction Land is the, for the service providers, the not favorable cash conversion cycle. Now often we're hearing that from a trades business or a sub where, you know, they'll have to do the work and then they don't get paid from the GC until 60 days later. But you're the GC and you're the one and, and you're the one who actually is. Gets their hands on the money from, from the end customer. So does that mean that your cash conversion looks a lot better than other, other service providers up and down the construction value chain?
- [25:28]
Jan Roll
Well, I can't speak to what other cash conversions look like, but I will say that one of the first things when I was working alongside the owner app post acquisition was, you know, he really stress that 24 hours or 48 hours after we received an invoice from a subcontractor that, that we would pay it and continue that practice. And basically this kind of goes into the, the strength of the relationship between our company and our subcontractors. So we, we pay immediately. And you know, so there is, I guess a little bit of, it's something that I'm feeling now as we've been growing. There is a little bit of a lag sometimes between when we're paying our subcontractors and when I'm receiving the money from the client. You know, little, little things that I've done is like, you know, we used to take 10 up front at contract signing. So I kind of moved out that 20. So hadn't had any pushback from clients. Just kind of moving up a little bit of the cash flows earlier in the process to kind of account for, you know, when the money goes out. But, but generally, you know, the money's going out before it's coming in. And that's just, I think part of the business. I've constantly calling my credit card company looking to get raises in my credit limit because, because I, I actually have to pay it intramonh sometimes two to three times a month because of just how much volume is going through the credit card, you know, and again, you know, just established the business. So there's a very limited track record and they're a little hesitant to, to raise it. But you know, I think I'm up at like 150,000 on my credit card. But I still have to pay it off intra month just based on the volume that comes through.
- [26:58]
Connor Gross
And so just to understand your cash collections, if you do a hundred thousand dollar job for a homeowner, they pay you now $20,000 at signing. And then how is the rest of that 80,000 paid to you?
- [27:10]
Jan Roll
Yeah, so it's basically progress payments. So generally it's 20 at signing, 20 after rough ins, which is, you know, mechanical, electrical, plumbing and then you know, inspection, you know, the city or county will come out, inspect and then, you know. Well, it's basically structured to after we've finished a stage, you know, then it would be drywall, cabinets, trim, then it'll be flooring and painting. And then so it's generally like, you know, 20, 20, 2015, 5. So we leave out 5% just to kind of until we're totally wrapped up, you know, finished everything. You know, I think most clients just feel more comfortable having you know, a final payment out there. And one of you know, I, and that's just something I've also learned is to just let that one Sit out there for as long as possible, not try to collect on it. It's only 5%. Let's let, let's get them post project, let them look at everything that has completed. I mean we provide a one year warranty and we will always come back out. But it just gives, you know, the clients a little more comfort to know that, you know, they, you know that there's a little payment out there.
- [28:15]
Connor Gross
So yeah, like I said, been there on the other side.
- [28:19]
Jan Roll
Well, when you figure out how to, how to, you know, I can't change a whole industry but you know, coming from a trust business like banking into a, you know, I guess a little different type of business, that, that part has been a big adjustment for me just to, you know, the only way that we can engender trust other than the referral is just, you know, in our responses, in our communication and you know, in our preparation. And so there was a lot of that. You know, one of the things that the, the previous owner did is he had a packet when he, when we show up at the door for a client and it has our insurance, it has our general contractor's license, it has references and it has like a, you know, and it's just kind of showing everybody, you know, that we are a professional organization. We're not just two guys in a, in a pickup truck. And you know, I actually created like a, a document. After we give an estimate, we'll provide the back and it's document. Okay, here's where you're at and here's what happens next with things like, you know, the process, the timing, you know, things to be aware of. And I think that's been well received as well.
- [29:18]
Connor Gross
Yeah, well, it's one of these where the poor reputation of the industry can serve you as newcomer well because the bar is low. And you can really differentiate yourself from your competition pretty well by doing some of these, some of these kind of tactics, for lack of a better word, that you're doing also some nice business buyer fit for you, Jan, that you're coming from an industry where trust is such a big deal. And so you can just kind of bring that with you into an industry where that's lacking and kind of again differentiate. And it comes very naturally to you.
- [29:50]
Jan Roll
Yeah, 100%. And that also, also goes towards employee management. I mean the other idea is that the, the construction worker I think is a little more like I work, I've worked here, I've worked there. Just trying to build a culture. You know, culture is sort of a buzzword in, in the corporate world, but a culture where people feel comfortable speaking their mind, but also, you know, having relationships at work. You know, there is just, it's a, it is a different type of employee. I mean, the most common thing I heard when somebody told me they were leaving is, I know I should have give you two weeks, but, but, but for the people that we have now on staff, I think everybody appreciates that. You know, it's a, it's, you know, it's a little more like a help each other out type of culture and, you know, trying to build a company to have people stay for long periods of time.
- [30:42]
Connor Gross
Yeah, Great, Jan. Well, what I want to do is have you tell us where you are now. So you closed in July 23rd. We're now. What is that, 21 months later, generally. And, and you are. Where is the business versus where you bought it? Kind of take us and then we're going to work backwards.
- [31:01]
Jan Roll
Sure, sure. So you're talking about financially, where's the.
- [31:05]
Connor Gross
Business financially and other indicators of health.
- [31:08]
Jan Roll
Yeah, yeah. Well, I mean, so, you know, generally, if you think about it, there was $6 million business. A project on average takes about three months. And, you know, in our sort of pipeline, you know, you know, you always want to have a million dollars in booked business as a minimum, which is basically kind of, you know, and, and in the beginning, I think when I took it over, there was about a million and a half in book business. 2024 was a slow year, and so that did go under the million at one point, but actually, as of Now, I have 2.75 million in booked business. So that's business that we're going to be doing over the next, you know, three to five months. Some of them are, are bigger projects, so they'll be longer than three months, you know, but the, the first year I was at 4.5, 4.5, so it was a significant dip. And again, for the, the, the reasons I said before, which was, yeah, obviously there's transition, so there's, you know, strain bringing on new people. There was, you know, election year and then just interest rates being high. You kind of. I kind of purchased the business right before the last rate hike kind of hit in.
- [32:13]
Connor Gross
Yeah, well, that's a, that would say 25% dip from six down to four and a half.
- [32:18]
Jan Roll
It was.
- [32:18]
Connor Gross
And you're, and you're.
- [32:20]
Jan Roll
My threshold is one third.
- [32:22]
Connor Gross
It was. A third was 33%. So you were maybe getting a little uncomfortably close to that.
- [32:26]
Jan Roll
It was a little stressful in the Beginning, I never had to. I never had to dip into, you know, savings or anything like that. I had a line of credit, so I got a loan through customers bank in Pennsylvania. They had offered me a fixed rate interest loan. And with a banking background, I kind of like the idea of a fixed rate loan versus, which I think is unusual in the SBA loan business. Um, but, you know, they were. They were good to work with favorable terms. I have a line of credit that I've had to dip in with occasionally just to meet working capital needs. But again, as we said, it's more a timing issue than a solvency issue. It was, hey, we got a lot of outflows. I think I probably dipped into it three times over the last 21 months and then paid it back probably within the next 30 to 45 days.
- [33:08]
Connor Gross
Okay, okay. And then back to where you are today. So booked revenue or booked business jobs are looking extremely strong for the next, whatever, three to nine months. Yep. And revenue is back up to 6 million ish.
- [33:25]
Jan Roll
I would, I. You know, we're. I'm on a fiscal year June, so I'll probably be north of 5. But from a trailing 12 months, you know, or for a calendar 2025, I'm expecting to be back at the 6 million. Yes.
- [33:39]
Connor Gross
Okay. Okay, great. And all of the problems that we're about to hear about have, have mostly settled. You're never totally out of the woods, but you're feeling stronger now, stronger now than you have for the last 21ish months.
- [33:55]
Jan Roll
Yeah. Yeah. I think, you know, you and I had had initial conversations about, you know, part of my. In deciding to buy this business was listening to this podcast, and I really enjoyed the. The variety of perspectives and in context. You know, I think sometimes the online literature can be repetitive. And so, yeah, you and I had a conversation early on, but I decided to wait until we overcome some of the problems so I could give a more contextual answer to, you know, some of the obstacles. So. So here we are.
- [34:25]
Connor Gross
Great. Okay. Well, that's where we're going. So. So this has a. I don't want to call it a happy ending, but we're working toward, you know, stability. That's where you are today. Let's now unpack some of these 21 months, because there was a lot, and you have a lot to share that others might learn from. I guess start with a loan. How are you going to structure the acquisition of this $6 million construction business? Sure.
- [34:50]
Jan Roll
Yep. So basically, I was going to use my 401k, so a majority of the deposit, it was a purchase of $4 million. And you know, 400,000 came from my 401k in a robs transaction with Guidance Financial. And then I put in $50,000 personally. And then I had a partner, a former partner who also put in $50,000 personally. So it was 80% robs through the 401k, 10% personally with 10% from my partner and then a, an SBA loan for the, for the balance.
- [35:25]
Connor Gross
No seller note.
- [35:27]
Jan Roll
There was no seller note. No, there was no seller note. There was a, there was an agreement to have the, you know, the, the seller work in the business for a period of time afterwards. And now you're, I'm reaching back into my memory and I know that the law had changed right around when I was contemplating the transaction, which is Summer of 23, I believe the law changed where the SBA now allows seller notes. But when I first initiated this, it wasn't allowed to get an SBA loan with a seller note.
- [36:03]
Connor Gross
I think what you were, what, what I feel like you're talking about is the change in the summer of 23 to enable partial buyouts. So, so your seller could actually retain some equity going forward. I didn't think it was about seller notes because I thought seller notes had been as long as I've been talking about this.
- [36:23]
Jan Roll
Well, then there was no seller note. You know, obviously you probably know more about this than I do, but.
- [36:28]
Connor Gross
Okay, well, somebody will correct me if I, if I got that completely wrong either way, no seller note.
- [36:34]
Will Smith
And did you.
- [36:35]
Connor Gross
And, and you. So the answer is to the reason you didn't get one because you thought you couldn't or you were informed that.
- [36:41]
Jan Roll
Basically you couldn't go.
- [36:44]
Connor Gross
And I'm only pressing because, because it is quite a standard instrument.
- [36:48]
Jan Roll
Yeah, yeah. I mean I, I'm. Is it because I didn't think I could or that just wasn't something that the seller was looking to accept. I, I, you know, I can't recall exactly why there wasn't a seller note. It didn't, you know, because we're only talking about like a three and a half multiple on sde. You know, the bank wasn't requiring it at the time.
- [37:10]
Connor Gross
Okay.
- [37:11]
Jan Roll
So.
- [37:12]
Connor Gross
Well, in three and a half on a business that has more than a million dollars in ste. Is, is a really strong multiple. And that may also be, I think you pointed this out to me in the pre call that that may be capture or reflective of the quality of revenue because it is project based revenue. Then you know, if this if, if this had been more recurring or reoccurring in nature, that multiple might have been higher. So, so that's works out pay a little bit less for, for revenue that is a little less consistent. Although if you have a great business, hopefully it is consistent. Okay, so the licensing, this is where, this is where you first, you're kind of the first big stumble, was it.
- [37:55]
Jan Roll
Not the licensing was, was where we, you know, and this is one of the reasons why when we were doing the due diligence in the first quarter of 2023 and we didn't actually get the transaction closed until July, was sort of the bank sort of bringing it up early, but saying it, you know, we shouldn't, shouldn't have a problem. And then we were originally going to close May, May or June. And I think the bank kind of came back and said, you know, we need somebody to have a license before we're going to allow this, this close to happen. You know, after going through, after I tell the whole story, like I fully understand why the bank now does this because the licensing. Well, because, you know, acquiring the license is, you know, going through the government authorities to acquire the license is not. There's, there's really no way of quickening the process. And I think we hit a pat a patch with, with state of Georgia where there was some dysfunction in the Secretary of state's office because we did hire a third party to help us shepherd through the licensing process. And they work in all 50 states. And you know, you know, so it really took an or it took over a year for us to secure the license. And that's just caused a lot of unnecessary stress, stress and strain on the company. And, and generally it was anytime that you, you know, anytime you submit something to the Secretary of state, they have 45 business days to respond. And then we learned no, first we learned it's. No, I'm sorry, it was 30 days. Then we learned it's 30 business days. And then we learned that for them a business day is Tuesday through Friday. It's not even Monday. So you're talking about. So it was like, you know, anytime we would, we would make a submission, they wouldn't even talk to us until, you know, these 34 day business weeks would transpire, which is like, you know, two months plus. And then they would come back and ask for more information. And then after like six months came back, you know, went by, they were like, well now you have to resubmit because certain things are outdated. And it was, it was a, one of the More frustrating experiences I've ever had. I mean, I, I went as far as found the zoom link to the monthly general contractor licensing board meeting and joined and I think I said some words. Well, I was stern, but I, you know, I kept my cool, but it was just kind of. Yeah, I do think it was a systemic issue that they were having. You know, obviously Atlanta's booming and there's a lot. But at least the feedback I'd gotten from the, the third party licensing company was that, you know, this was very unusual in all the other states. You know, you know, things don't. Were dragging on this long. So yeah, hopefully they fixed it by now.
- [40:33]
Connor Gross
And so when the SBA lender. So going back to pre transaction, when your lender comes back and says, oh no, actually we do want there to be this to be addressed. How did you address it at that point?
- [40:44]
Jan Roll
Well, at that point, I mean, it actually got to the point where the deal was going to fall through over it because, you know, you can't quicken that process, you know. And I think it wasn't until we basically were going to walk away that the bank came back and got some sort of concession from the sba. I'm not really sure. Obviously this was happening within the bank itself, but they were put in a bind. I did start looking at other banks at one point to see if I could get the transaction closed with a different bank that wasn't going to require us to have the license prior. Now again, part of the purchase transaction was seller was going to stay on and we were going to use his license for, you know, for the first year.
- [41:32]
Connor Gross
Yeah. So you had this license. But the, but the, your SP lender got spooked about the seller when the seller was going to inevitably leave and then he was going to have the license. Okay, yeah. Okay. And so, and so the answer was basically you just kind of pushed back on it and we're going to walk from the deal. And your lender said, okay, no, no, no, no, it's okay, it's fine, it's fine.
- [41:50]
Jan Roll
Basically. Although that, that, that took a couple months. Um, yeah, yeah.
- [41:55]
Connor Gross
Okay.
- [41:55]
Jan Roll
So. And also, you know, the, the bro. The seller's broker who worked with, I can't remember the name of the firm, but it was a pretty reputable business broker. His firm was also, you know, applying their wisdom and context and pressure as to like, why are you not approving this loan? But you know, in retrospect, I do understand because it had taken us so long to get the license, why this is A requirement. Yeah, you know, we did manage to get through it, but it did, it did. It just, it's just having that hanging out in the background was sure, you know, was a stressful period.
- [42:25]
Connor Gross
And, and so to get the license, you, the individual now licenses you?
- [42:30]
Jan Roll
No, it's not me, actually. I mean, I have plans to get my license, but I have someone in the business who's, you know, 25 years in construction. And you know, obviously the part of the licensing is that you have to have two years experience in, in the field. And so I couldn't get that until. I think I'm probably coming up on crossing that. But I do intend to sit for my license. But basically you. I have a licensed general contractor who basically is a qualifying agent for the business.
- [42:55]
Connor Gross
Okay, tell me about this partner. Well, deep side.
- [43:01]
Jan Roll
So I, you know, somebody from my personal network, you know, who I liked a lot and had been in the construction field up in New York, originally from New Jersey, had personal connections through my wife. I think they went to college together, friends of friends. He had moved down into Atlanta during COVID and we kind of went out socially and I had already kind of, you know, found, you know, this company and was, was going to, to, to purchase it. And I, you know, obviously with his background, I approached him and I said, you know, are you interested in, you know, joining me in this endeavor? And, and he was. And, you know, we kind of, we kind of created a, you know, stockholder agreement. This is where, you know, I, you know, I was the one that was taking the full, you know, brunt of the personal guarantee on the loan. So it was like my 401k, my personal guarantee. He was, you know, it wasn't tied into the liabilities in any way. And other than that's why I kind of said, I need you to have like an equity component. I need you to have some skin in the game, you know, for the company. Now. I guess the, you know, no liking somebody socially and somebody having a background in, in a new endeavor that you're doing are actually positives. But I, I, you know, I had not actually worked with the gentleman before and obviously I think there are, and I have, I don't want to, I don't want to speak too negatively, but let's just say that after we purchased the business and we had our different defined roles, it became pretty apparent to me that it wasn't going to work out with him in the business. And so basically after three months in the business, I did wind up letting him go from the Business. Just without getting into too many details, I just didn't see a path forward. You know, there was just some unhappy clients. Unhappy, unhappy employees, you know.
- [44:56]
Connor Gross
And what was his role or his title?
- [44:58]
Jan Roll
His role was basically to run the field operations teams. Um, you know, and he was a, you know, a minority equity holder in.
- [45:06]
Will Smith
The company looking for an SBA loan to buy a business. Then meet Pioneer Capital Advisory, your team for getting an SBA 7A loan quickly and at great terms. The team at Pioneer has closed 81 SBA loans in just the last two and a half years, with an average close time well under the industry standard. Founder Matthias Smith and General manager Valerie stash both have 10 years of SBA experience and know the process cold. There are three analysts at Pioneer who build you a lending presentation that speaks the language of the bank's underwriters and gets them to. Yes, two account managers to guide you from underwriting to close as fast and smoothly as possible, and two sales associates ready to walk you through the Pioneer Capital advisory process. That's nine people at Pioneer. A real team. To get you where you're trying to go. New owner of a business, go to PioneerCapitalAdvisory.com or click the link in the notes.
- [46:18]
Connor Gross
And so how do you claw back, or do you claw back your equity?
- [46:23]
Jan Roll
Well, so there was, you know, we actually had a formal agreement where that we had a stockholder agreement and there was an automatic callback if there was termination within the first two years. And I mean, what did wind up happening is as. And this is, I guess, some of my advice for, you know, future entrepreneurs. You know, I had a lawyer who was going to do our purchase agreement and it was a flat fee, and I thought it was a very, you know, attractive fee. And then, you know, during the process, I said, hey, can you also do my stockholder agreement between me and my partner? And he did, you know, fast forward. What happened is we didn't have a separate employment agreement. And so there were some terms, ambiguous terms in the stockholder agreement related to employment. And after I, you know, kind of terminated my relationship with the partner, yeah, he did wind up coming back and filing suit against me. And then in the discussions with the lawyer, post, you know, that suit, you know, you know, what, what came out to me was, you know, you sort of have some ambiguity in some of your legal documents because you didn't have a separate employment agreement.
- [47:31]
Connor Gross
So tip there would be what?
- [47:34]
Jan Roll
Get a better lawyer, I guess. I have a statement. You should. Yeah. So not to. Well, I probably should have had an employment lawyer draft an employment agreement, you know, separate from the stockholder agreement. Yes.
- [47:45]
Connor Gross
Okay.
- [47:46]
Jan Roll
Okay.
- [47:47]
Connor Gross
And I know you don't want to get into it too deeply, but it is a key feature of this story. How bad did this litigation get?
- [47:56]
Jan Roll
Well, I mean, the thing is, you know, there's a lot to do when you take over a new business. There's a lot to learn. There's. Yeah. And having a. Having a lawsuit is the first time I've ever been, you know, in a lawsuit before. It just, you know, it took a lot of money and it took a lot of time. And, you know, basically we went through mediation, and. And I think that the thing that. And, you know, obviously, I can understand that, and I can empathize with you being upset about the situation, but, you know, you sue a company, there was nothing to get. Right. I mean, all. We were a giant, like, loan, so. And, you know, so you tried to work it out in mediation, and it failed in mediation. And then we went through discovery and. And then I think after we went through discovery and turned over all the emails and documents, and he realized that there was no incriminating evidence of me conspiring with the former seller. You know, he. It was interesting. I think he was actually more angry at the former seller than he was at me. He thought that. He thought we were in cahoots together, but it was really just a reflection on performance as to why, you know, we had to terminate. But I think sometimes, you know, the. The ego doesn't want to accept that. And so he was looking for. For ulterior reasons. But once we went through discovery and I turned over all the emails and all the text messages, and I advise anybody that you don't want to go through this process, because trying to figure out how to put all your text into a PDF is. Was a day's job alone. You know, I think that. And we just went, you know, back to, like, a private negotiation. We settled. So.
- [49:38]
Connor Gross
Okay. Okay.
- [49:39]
Jan Roll
Overall, it probably cost me $120,000 to settle the lawsuit between, like, lawyer fees, half in. Lawyer fees, half in. In, like, you know, a severance.
- [49:49]
Connor Gross
Yeah. And that 120 comes out of the business.
- [49:51]
Jan Roll
Comes out of the business.
- [49:53]
Connor Gross
Yeah. And of course, what it also cost you in opportunity, cost of attention. I mean, this really consumes your attention at one of the most times where your attention is most needed and in the learning and the transition. I mean, it really is. We talk about it often in some of the legal webinars that we. The legal office hours that we host. You just, you do as much as you can to protect yourself in the legal docs, but you really just don't want to get into a lawsuit. I think everybody already knows that they're extremely costly first, but particularly in this context, if they're likely to happen, they're likely to happen in the first year or two of your ownership, precisely when you're going to be drowning in, in.
- [50:33]
Will Smith
The learning curve as it is.
- [50:35]
Jan Roll
Yeah.
- [50:35]
Connor Gross
So you just can't, you just can't afford attention wise, another giant distraction like that. But you did, you, you pushed through.
- [50:43]
Jan Roll
I think I worked more than half of weekends in the first year. I was definitely working both Saturday and Sunday, so.
- [50:49]
Connor Gross
And I gotta ask, was this awkward for your wife and her social network?
- [50:57]
Jan Roll
You know. No, not yet. No. No, I don't think so. Okay. I mean luckily, you know, trying to have it, leave it on as good terms as possible, but you know, we're not necessarily in that close of circles. Although like our children do go to the same school, so.
- [51:13]
Connor Gross
Oh, okay. Bumping into each other at PTA meeting sort of thing.
- [51:18]
Jan Roll
Yeah.
- [51:18]
Connor Gross
Beyond. And what, what is the takeaway here? The learning, if anything, how could you have diligent. You know, this is, yeah, this is, I don't want to call it a diligence miss Although maybe, maybe that it's as simple as that. How do you react to, how do you reflect?
- [51:32]
Jan Roll
You know, I guess there's a couple things I thought that having a partner with experience in a field of which I did not have enough background in was going to outweigh the drawbacks of really not having a good handle on, you know, who this person was as, you know, in their field and you know, as a, as a worker.
- [51:52]
Connor Gross
Professional. Yeah.
- [51:53]
Jan Roll
Yeah. And so like I guess my, the takeaway is, is that, you know, you, anytime you're going to get into a partnership, I would only do it and you know, with somebody that I've, I've known well and I've worked alongside for a long period of time. So I think that, yeah, that was a diligence Ms. Or yeah.
- [52:11]
Connor Gross
Or is it not doing or simply there's just too like in the pre call we talked about, like, well, how could you have really diligence this person's professional character? Maybe you could have in the same way you wouldn't employ professional references or something.
- [52:25]
Jan Roll
I did ask, I did ask for references and I actually spoke to one of his references who had great things to say about him. I think that, you know, he did come from a commercial Residential background and not a residential, you know, I don't know if that, you know, maybe I couldn't gauge that the transfer would be. Would be difficult, but really what it came down to is, you know, he had a, he had an employee mindset, not an owner mindset. And. Okay, he, you know, just was making a mess of things. Was making a mess of things, you know.
- [52:54]
Connor Gross
Okay, okay.
- [52:55]
Jan Roll
And it was like, you know, you know, you don't. I think anyone who's been a manager, it's like, how much time am I investing in people to get back some time for things that I don't have to do? And it was just, you know, it was just like, hey, this, you know, we're not, you know, not getting anything done and investing a lot of time, and that's the last thing that I need from a partner.
- [53:14]
Connor Gross
Yeah. Yeah. Well, one of my horror story interviews a few months ago was a similar thing where the acquisition entrepreneur partnered with somebody that he met through his church. So not exactly social network, but sort of. And it ended up being just a horrible disaster. In fact, the reason for the collapse of everything. And so the question is, I guess, is it a diligence miss or do you just. There's just too much risk in taking on a partner that you just don't know well to begin with?
- [53:50]
Jan Roll
Well, I, I would say, you know, and this is why, like, because I think some people may be saying, like, you know, it was 12 weeks until I had decided you're taking on a lot. I mean, you are taking on a lot of risk in an opaque situation when you're buying a small business like this. And I, and you know, as you know, we talked about. Dan, I have another friend who's on this podcast. You know, all three of us sort of did this acquisition in, in a six month. I mean, one of the things that we've. There's no amount of due diligence. You are taking a little bit of leap of faith because there's no amount of due diligence that's going to give you the full, full picture. So then you're adding, you know, so you're already taking a lot of risk and you're putting a lot of faith in, in a business. And then to do that again with a partner that you don't know, it's like, how many. You know, any. You only need one of these things to go wrong for things to go belly up. So I guess, you know, hey, if, if 10 years from now I want to take on a partner, it's Going to be a lot different of a situation than if I, you know, doing it at the outset. And so I would just be mindful of how many unknowns and how many risks you're taking as you set up your deal. Yeah, great.
- [54:56]
Connor Gross
Thank you, Jan. Employee turnover unrelated to the partner. You're not including the partner.
- [55:02]
Will Smith
Others now, right?
- [55:03]
Connor Gross
There's been. There's been some turnover, has there not?
- [55:05]
Jan Roll
Tell us about. There has been some turnover. Well, we had, you know, I think that the business was on the market for probably a full 18 months before I purchased it. So, you know, I guess by the time. By the time I started talking with the seller had been almost a year that he was trying to, you know, that he had it to be sold. I think it became apparent after the fact that there were some promises made to some employees, kind of keep them there, you know, because once I purchased the business, I think, you know, I. I actually did what I was supposed to do. We had meetings with everybody. We sat down. I did formal retention letters for people like, hey, look, if you. If you're here in the business through, you know, a year, like, there'll be a bonus payout. And I put it in writing and all that. But I think. And, you know, this comes a very. I'm very understanding of where the employee mindset would be. As somebody who has lived through multiple financial mergers, I've been in that situation where, you know, a new company bought our company, bank of America bought Merrill lynch during the height of the financial crisis. And I was just like, you know what? I don't want to work here anymore. I mean, that's how I felt. And I laughed. And looking back, it was probably a mistake, but that was in my mind. And I don't fault the handful of employees that just sort of felt that way. Just didn't want to go through the emotional turmoil of, I got to learn a new boss. I've got to deal with this. And obviously, anybody who's worked a job for extensive period of time, I used to have this saying, it's like the longer you're out of place, you start to see the cracks in the walls. When you go into a new company, everything is. Is, you know, shiny and new and new people, and it's friendly. And then, you know, by the time, you know, and then when you leave a place and you go to another place and you start to see those cracks, you look back and say, well, those cracks weren't as big, you know, but they all cracks. So I think, you know, some of the Employees had been around for a long time, and just, you know, I think in retrospect, they, you know, they just didn't. They wanted, I guess, to. In the same way I did with the bank of America Merrill merger. You wanted to choose your own fate. If I got to. If I got to have a new boss, let me be the boss of my choosing versus one that's foisted upon me. So I think there were a couple. You know, we had a project manager who left within the first month. We had an office employee who left, like, right before the transaction closed. And then, you know, those were ones that were, you know, those that didn't want to, you know, come along with the transaction. But then there were some people who, like, you know, close the business. I'm in at 6:30. The seller's in at 6:30 with me. We're like, hey, we're gonna do knowledge transfer. And within the first month, he's like, you know, this person you should fire. And I'm like, wait a minute. You had this guy on your payroll for three years, and you're telling me he's now a low performer? So to his credit, I think irrespective of what had happened in the past, he was giving me the sound advice to say, yes, I may have kept this person around. I was selling the business, but, you know, there. There are some deficiencies in. In this person that, you know, we cannot accept. So.
- [58:14]
Connor Gross
Okay, so. So let me unpack a few things there. So. So first things first. Some of the turnover that you experience, there's really nothing necessarily to be learned from it. It's just there's always going to be some employees who use it as a prompt to leave.
- [58:28]
Jan Roll
Well, I mean, my experience, I would. I would say both the corporate experience and the small business experience is that it's an emotional time and you should expect some employees to leave. Yes.
- [58:41]
Connor Gross
Yeah. Okay.
- [58:42]
Jan Roll
Yeah.
- [58:42]
Connor Gross
And then. Then there were some low performers that you were given the knowing certain terms recommendation from the seller who could have done this dirty work himself, that you should let them go. So you absorb that. You do that.
- [58:57]
Will Smith
And then the thing about the retention.
- [58:59]
Connor Gross
Bonuses, and I heard you say before the transaction, or you know, that you were basically having interactions with employees pre close.
- [59:05]
Jan Roll
Well, you know, I wanted to have interactions with employees pre close, but it was like a firm. No. From, you know, the seller, also advised by the business broker that, like, you can't talk to employees before the close. And so, you know, actually this was one thing where I insisted on meeting, you know, the Office person who left. We, we did have a lunch and because, you know, I'm an office person, I'm not a field person. And so I wanted to make sure that at least, you know, we had a conversation, we had a lunch and it went fine. And you know, that person had been in the business for 12 years, worked side by side with the seller and did wind up being one of the people that, you know, left, you know, right before we were going to close the business. And, and it was all for personal reasons. I feel like, you know, in spite, you know, we didn't actually have the lunch until very close to the end. I felt like she felt like a partial owner of the business with, with the seller. Seller didn't see it that way. We waited to the end to tell her. She, she had some, she doesn't talk to the seller anymore after, you know, basically working in his home for 12 years. She just felt like that the way the transaction down, not from our point of view, but from the seller's point of view was, wasn't above board enough. And so again, I don't know what else I could have done, you know, you don't know. You know, there's no way you're going to peer into what a 12 year relationship looks like, you know, at a lunch. So.
- [60:34]
Connor Gross
Okay, Jan, the head of sales, remind me. We glanced off that in the pre call, but that is a feature of these last 21 months as well.
- [60:43]
Jan Roll
Well, yeah, well, so I mean the head of sales originally, you know, the seller was the head of sales. Um, and then my partner was going to be, you know, head of sales. And then I think I hired another person to be head of sales. Who within head of sales has to be kind of like you wake up in the morning and you, you want to get on the phone and talk to clients. I mean, I'm, I'm. Well, that's not true. I have worked in sales roles, but I did realize that I'm not ahead of, I'm not a salesperson. I, I kind of gravitated toward the project management, product management side of, in my corporate life. But I worked with salespeople all the time. And I know exactly what a salesperson is. It's a person who can't stop talking, you know, you know, gets, gets energized by meeting new people. And so we did wind up hiring somebody again, 30 years in the business, you know, general contractor. But again, you know, apparent within. I think, I think I wound up letting him go within 30 days. You know, I'd never had to make decisions this quickly on things like employees. But given that like, there is no room for error in a business where you have a giant, a 90% loan. You know, it's, it's either, it's either like you're cut it or you don't. Right? There's no, you know, the other thing this to note is, you know, there's nowhere to hide in a small business if you're not doing the work. And I mean, I think in a corporate world there are some people who are good at their jobs but are just kind of doing the bare minimum. Like it's, it's, there's, there, there is, there isn't enough extra capacity for somebody to, to, to not be pulling their weight. And, and so, so there was this, you know, for a period of time I was actually doing the sales with the, with the, with the prior owner. But you know, I needed to find a, a head salesperson and I did wind up promoting somebody from within the business. The, you know, somebody who was a project manager who had sort of that, the proactiveness go getter, like always offering his opinions like, say I'll do whatever it takes. Basically. You know, he's been a godsend for me. But, and, but he, you know, he leads the whole, you know, he's also the one that, you know, has the construction license and who is, does that, does the sales. But again, you know, that was, you know, that's a key role in the business is, is, is the lead generation and, and sales.
- [63:11]
Connor Gross
Jan, I, I, I think we're talking about all this stuff in your, because it's in the rear view mirror. I guess you, you're quite relaxed about just kind of relaying it. How bad did it get? How gray did your hair turn? Because I, you don't, I don't see any gray.
- [63:29]
Jan Roll
Well, you know, I, I, I think.
- [63:30]
Connor Gross
Part of you seem pretty chill right now.
- [63:33]
Jan Roll
Well, you know what? Even those that are in the business, I, I think even when it was in a stressful time, I don't, I don't show the stress. My, my wife sees it in eating and drinking at home. But like, I generally like, you know, you know, one of the things that got me to the point of buying this business was, is that I had faced some very large challenges in my corporate life and even, and at the end I got fairly senior as a managing director at a bank. And you know, it became kind of a fixer where like something would be on fire, like, you know, the manager, somebody a peer of Mine would go to my boss and say, like, I don't want to be a manager anymore and people are leaving. And he would be like, okay, you're now in charge of this. And it would be areas that I didn't have any experience in. And so, you know, you do. You do a couple of those, like, kind of turnaround projects within a corporate structure, and you're kind of like, okay, I can handle. I used to, you know, the way I describe it is like, I'm in. I'm in a dark room, and I don't know where the walls are. That's kind of where you start. And then eventually you. You search around and you can feel the walls, but it's still dark, you know, but you feel a little better. And then over time, you know, the lights start coming on. And so if you go through a couple of those experiences, you kind of learn just how to approach the problem. And some of it is, you know, some of it is having the right people around you or the right areas to get the information. Now, when you're in a corporate structure, there's all these matrix. Hey, there's an accounting, there's a compliance team, there's. There's a sales team, there's a product team, a Treasury team. You know, in the small business, those people, for me, are my subcontractors and my vendors. And so, you know, like what I, you know, the beginning, while you're learning, you kind of feel shy. It's like, well, I don't want to. I don't want to bug them because I'm going to show how much I don't know. But that quickly goes away. And, and, you know, I've actually moved, you know, certain vendors. Like, I just. I tell a new vendor now, hey, I'm 21 months into this business. I don't come from a construction background. Like, I have business to give you, but my requirements are you're gonna have to answer some questions. I ask a lot of questions. And you know what? There are plenty of people who are willing to do that, and there are some people who don't want to do that. And that is. That is sort of like my knowledge network. So it allows me to. When I come across a situation that I don't know the answer to, I can leverage, like that sort of network of, of, of of companies that we work with.
- [65:50]
Connor Gross
So takeaways there would be. Well, first of all, you just had this nicely applicable experience of being kind of doing internal turn, turning around a few times. So you've built You've built a, a muscle in navigating unfamiliar terrain and absorb, Absorbing, I guess, drama and hardship in a business.
- [66:11]
Jan Roll
Being able to live, you know, being able to work in a ambiguous environment where there are no clear answers. Like, I would, I would say if you're coming from a corporate world looking to do this, you should reflect upon, like, how have I been put in those situations and how did I feel? Did I enjoy being those situations and I. Was I successful in those situations? Because this is one giant ambiguous, like, ball of, like, figure it out.
- [66:36]
Connor Gross
Yeah, Giant ambiguous ball. Figure it out. Thank you for the headline for this episode. And, and then the other thing, of course, was having the humility or, or, or not overthinking how you'll be perceived if you just ask questions up and down the value chain to your customers and to your vendors, actually.
- [66:53]
Jan Roll
Yeah.
- [66:53]
Connor Gross
Now do you. Do you. Not to your customers, but to your. To your vendors and to your subs. Your subs are your vendors. Yeah.
- [67:01]
Jan Roll
Yeah.
- [67:02]
Connor Gross
I just want to hear a couple of other. I want to hear about Rob's. If you have anything to say about Rob's, which is an instrument that we hear about from time to time, people are very interested in. Of course. I want to also hear about the marketing and SEO, which is. Has been a big, happy lever in the right direction. Yeah. But anything on the emotional content of your story or the drama that we haven't touched on yet.
- [67:25]
Jan Roll
The one thing I can't stress enough is sort of like, there's no amount of due diligence that you're going to do in a small business that's going to give you the full picture. And that is why they're priced the way that they are priced. And so at the end of the day, it is a bit of a leap of faith and you're going. I think I kind of latched onto, like, hey, there was structure in the business. There's process. And that did turn out to be true. Um, but, you know, you don't know about employee relationships and you don't know about all the vendor relationships. And you know, you're not. Not until you're actually in a business. You can see the financials. And I would say coming from a backing background, the financial due diligence was probably the least sort of illuminating because, you know, like, I mean, numbers are numbers and they don't always tell the story. So I, I would say, you know, in. So if I was going to go back and I would say I should have negotiated harder on price because when you're going into these transactions, you're look, you're excited, super excited. I mean couldn't, couldn't, couldn't stop thinking about it and talking to, talking to you know, the two other entrepreneurs and you want to glaze over, you know, what little flaws that you see and want to justify the price that the seller wants. And every seller is like hard line on their, on their price. But I would have negotiated harder on the price and I would have probably demanded more contact with the employees prior to for selling. Right. Because if you're going to put all the money on the line, you know, you got to go, you got, you know, you got to have the margin of safety as it relates to price and in the due diligence, you know, having a little bit of window and, and direct contact with the employees I think would have been key.
- [69:18]
Connor Gross
And, and so to be clear, you would have in retrospect pushed harder on price because the, to give yourself a little bit more basically a little bit more room for things to go badly because you were, you were overestimating what you knew about the business and there.
- [69:35]
Jan Roll
Was, there's just so much more business. It was, I was overestimating that the, you know, again as I said, I was overestimating that you're going to be able to hit the ground running and the business is going to run. Now maybe this be because I picked a project based business versus annuity type business and you know, one of my friends who bought the business, you know, he bought an H Vac business. You know, that's one of my 30 trades that I have to learn. Right. I mean we have, we have an H Vac, you know. And so, and I think having the, and maybe this particular business has such a wide breadth of knowledge that I needed to scale. It actually works well for me because I like to learn and it, it engages me every day but it, it made it harder in the beginning because there was just too much to learn. But yes, I would say that you don't know what you don't know and there, and that's why the pricing is, is the way that it's at and that you want to actually have a little bit more margin of safety than yeah. Than you know, just, just in case great Robs.
- [70:36]
Connor Gross
Anything to say about your Rob's experience, something you recommend? Of course you went with guidance. That's the big name and it's the big Rob's vendor out there.
- [70:44]
Jan Roll
I mean it got the job done. Right. I got the money out of the 401k I got it into the business. There's, you know, there's a little bit of administrative burden that comes with it. It's not necessarily an intuitive process to kind of go through guidance. Was. Is a good partner. You know, not that I have any other experience, but I wouldn't, I wouldn't. I didn't have a bad experience with guidance. I just, you know, I just think that it's, you know, there's a. It's a very technical. Because you're talking about the four. You know, the, the IRISA laws and, you know, just opening up other bank accounts and moving the money and getting through those hoops. You know, it's kind of a chore. But other than that, you know, I mean, hey, like, if, if you don't have $500,000 laying around except in your 401k, like, you kind of, you know, it is an option where there are no other options. And so, like, I would certainly say that if that is your only option, don't shy away from doing a ROPS transaction because, you know, it does work. It's just, you know, there's. There's just an administrative burden that comes with it upfront when you're trying to move the money around and then on an ongoing basis, you know, running, you know, you have to run a 401k for the company and an offer for the clients. Now, I will say one thing that I've learned, and I'm gonna, you know, I'm gonna give that. Since I'm a banker at heart, you know, this is not tax advice. Please consult your professional. But, you know, in the 2017 tax reform that Trump did under his first administration, there was a new concept called small business qualified stock, and it only applies to C Corp stock. And you are required with A robs to have C Corp stock. So I have a C Corp. A C Corp stock. But in that law, they. A small business qualified stock basically says that if you're under a 20 million revenue business, you can sell a company with no capital gains as long as you've held that stock for five years. So USPS through. Well, if you have a C Corp, it's, it's really, it's. So they kind of align in a way, like you're forced to do a C Corp with robs, and then this law has a. A avenue to get capital gains at no tax liability for C Corps. So I think they kind of go together. And so if anybody is considering the robs, it's probably worth looking into because I've. I'VE had, you know again we're talking you have to own the business for five years. I wasn't even a deciding factor in making my decision with the Robs but it came up after the fact and I think it has, you know, some positive opportunities in the future.
- [73:16]
Connor Gross
Yeah, no it's, it's a huge benefit. And, and am I right that we're talking about the same thing?
- [73:21]
Jan Roll
Small business. Small business Qualified stock. Sbqs.
- [73:25]
Connor Gross
Yeah.
- [73:26]
Jan Roll
For.
- [73:26]
Connor Gross
And why do I, why do I know it as the acronym or the.
- [73:30]
Jan Roll
The acronym should be wrong?
- [73:31]
Connor Gross
Qsbs Qualified Small Business Stock. We're talking about the same thing. Yeah, yeah great. Is a, it is a big benefit. I don't fully understand it yet but from everything that I hear about it, it's actually an enormous benefit. The idea that you could not pay capital gains on multi million dollar transaction itself represents millions of dollars.
- [73:51]
Jan Roll
Well and this is you know the, the crux of my financial. You know I have a financial background so I have an, I have not. I have most of it in my 401k and I have a little tag personally. So the, the once I pay off the, the loan my goal is to then retire the, the stock. So I'm basically we'll start. Instead of paying a loan I'm gonna pay, I'm gonna buy back the 401k stocks. Well that you know. So I have a $4 million business, you know 400,000 from the 401k. Well when I pay off the loan that, that 4 million is. That 400,000 is now worth 4 million. Revalue the company. Then I start paying the earnings to redeem the stock. So basically I put 4 million into the 401k. Now that's tax free. And then I own the company personally 100% because I've redeemed all the 401k and then can sell that without a taxable event. So I have not consulted a tax lawyer but I, I imagine that this is the path that I'm exploring and I found it to be a very interesting path.
- [74:54]
Connor Gross
And, and so just to distill that you think that you can basically go through effectively a sale of the business twice, both times tax free.
- [75:03]
Jan Roll
Well the first one isn't the sale of the business, it's a redemption of the 401. But because like, because it's highly levered that you know, so if you think of the balance sheet is three and a half million dollar loan. Four hundred thousand in 401k, a hundred thousand in personal. So when you Just pay off the loan. Right. With the earnings from the business. Then you have, let's just say there's the same value company. You have a 4 million, $4 million business where not, you know, that 90. So 3.6 million is the, the value of the, the 401k stock and then the rest is, you know, personally owned. And so then I, then you go through another revaluation to revalue the stock in anticipation of buying it back using the earnings of the business.
- [75:48]
Connor Gross
Right. And so then you buy it back and, and because it's in the 401k, it's tax free.
- [75:54]
Jan Roll
Right, exactly.
- [75:55]
Connor Gross
And then if you Yan. And now you Yan personally own the business as opposed to the 401. 401k owning the business. And so if you then at your retirement exit the business personally. That's what I was kind of Right.
- [76:09]
Jan Roll
The worst case scenario would be I grow it so there's more than 20 million in revenue and it's no longer qualified small business.
- [76:15]
Connor Gross
Yeah.
- [76:15]
Jan Roll
So that's the worst case scenario. Now again, I just want to say, like, this is me personally reading the law and doing my research. I'm sure there's some lawyer out there being like, you can't do that, but you never know.
- [76:26]
Connor Gross
So, yeah, do your own research, everybody. All right, John, close us out with this very, as I said, very fortunate SEO.
- [76:35]
Jan Roll
Yeah.
- [76:36]
Connor Gross
Project of yours.
- [76:37]
Jan Roll
Yeah. Well, I mean, so again, there's always been referral business that has come in, but the, the, at the, you know, I basically that 2024 was a combination of transition with the business election year, which I, I didn't know was a thing, but apparently everybody in construction knows that election years create uncertainty and it, it kind of like, it kind of puts a drag on the business. I, I've talked to like my window suppliers and my lumber suppliers and they all say election years are, are a slow time. And so I, you know, and it was a slow time. And you know, when, when it was slow, obviously I'm the owner. I got to fix the problem. This is, you know, focus my eyes on it. So spent a whole bunch of money on marketing, you know, did some sort of print advertising, mailers. We did some, you know, you know, go on to houzz.com. we've always had a presence on houzz.com but you can pay for lead generation. And, and then I started talking to, you know, well, another thing you'll learn when you become a business owner is you get calls from a million different people, solicitations. But you got a lot of who.
- [77:44]
Connor Gross
Want to buy your business.
- [77:45]
Jan Roll
Well, there's no want to sell you products and services. So I get a lot of SEO calls because I um, I guess they, you know, so the great thing, we had a great website. We had hundreds of projects. We had beautiful pictures, professionally taken, no words, no taglines, no keywords. So if we, you went on to and you Googled like Atlanta basement remodel. We were on page 14. So all of the business was becoming either word of mouth. You know, my, my Google console analytics would say like 98% of people found you by Googling Foundation Victoria Renovations. So it's like okay, like the only way that you found me with Google is if you already knew who I was basically saying right. So I did, I did kind of contract with. There was a, you know, a company that eventually said okay, let me give it a shot. You know, spent like a thousand dollars, did like you know, six weeks of, of weekly meetings with them. And when they told me that like okay, if you in nine months I gotta pay you this money and in nine months later in one one like you know, Sandy Springs bathrooms, we can get you into the top three pages. And I'm like, I'm not, I'm like I can't, I can't afford. And I needed to move faster than that. And so you know, luckily I had somebody through my network who wasn't a friend of a friend who'd done SEO. He spent two hours with me. He just said I'm going to record this and you just, you just do what I say you're going to do. And basically you know, talked about going onto each page, putting on the keyword search, using an AI, a plugin to kind of auto tag the pictures. I got chat GPT and I basically it's. Everybody knows it's amazing. But I put in the contract, I put in the pictures. I would then have a prompt and it wrote me, you know, everybody can go to you know, victoriarenovations.com you can look at my chat GPT project summaries. And I just started like going through the hundreds of projects and started to optimize it for, for the Google search. And you know there's Google paid search which is the sponsored but this is all free. It's just your time and effort and, and honestly like so that it just. Yeah, I didn't even finish it. I got a 1/3 through updating the website and then I got too busy because of all the, the business that we had to, to finish it.
- [80:06]
Connor Gross
So you got too busy because it works so well. All these new, I mean, leads from Google were coming in.
- [80:12]
Jan Roll
Well, I mean, also it was post election, but we get a lot. There are a lot. I always ask every, every prospect, I take every prospect call and I set up the initial meeting and I ask every prospect, okay, where did you hear about us? And I would say prior to doing the SEO was very limited on Google, mostly probably location based, you know, because you're kind of in the same area. But I would say probably like 25% of our, to 33% of our leads are now coming from, from Google. And it causes its own problems because we actually have had to expand our geographic area a little bit because the Google obviously is hitting it. It's hitting people from, you know, a little further outside, like the referral window. But it's been amazingly effective. It was only my time and effort. It is a little daunting to learn how to, how to do SEO. We use WordPress, which is this sort of UI for the website. But, you know, I'm an owner. I learned it. I can go into the back end and I can update and then I can see, you know, I was gonna be sitting on my couch at night, like Googling Sandy Springs basement remodel every day to see, like, what page I was on until I got up to the first or second page. So.
- [81:22]
Will Smith
Amazing.
- [81:23]
Connor Gross
And, and by the way, have you finished the other two thirds?
- [81:25]
Jan Roll
No.
- [81:26]
Connor Gross
Wow. Okay.
- [81:27]
Jan Roll
I haven't had a chance. I did this all last summer and we've been too busy since, so.
- [81:32]
Connor Gross
Well, that would be a, you know, hop on upwork. Jan. If, if it really, if it, if it, if it really was it generated that much for you that quickly, well.
- [81:44]
Jan Roll
We have more business than we can handle at this point, so. Yeah, you know, but yeah.
- [81:48]
Connor Gross
Great. Jan, anything else? Anything we didn't hit?
- [81:52]
Jan Roll
No, I, I, you know, just in spite of the challenges, I do wake up every day energized in the business. Like, everything that I. All the rosiness that I kind of went into the transaction with has come true. I'm able to, I'm excited about, like, learning the new business. Business is doing well. Like, the skills that I've learned in corporate America as it comes to managing people or dealing with, you know, you know, just getting through the problems has served me well, but it just took a little bit longer to get there and the challenges are pretty steep. And, you know, I would say that the good news is, is I was always a hard worker, but like you, you don't. I don't think you buy a business and in order to work less so.
- [82:42]
Connor Gross
You mean it's not passive?
- [82:43]
Jan Roll
It's not passive. It is not passive. So is that good and the bad?
- [82:48]
Connor Gross
If people want to reach out LinkedIn work and why don't you plug the URL? Victoria renovations.com is it?
- [82:55]
Jan Roll
That's victoriarenovations.com Yep. There is a contact Us page that goes directly to me. You could also, I believe my phone number is on there as well. So feel free to text. I don't know see what that turns into. Careful. But yeah, I'm happy, I'm happy to, you know, it's kind of a community of people who are interested in, in this and I, I'm happy to share my experience with, with potential, you know, with potential future entrepreneurs.
- [83:24]
Connor Gross
No, appreciate the offer, Jan, and appreciate you coming on and, and sharing about your experience. Congratulations on, on these last 21 months. Difficult, but love the point that you closed with that. You wake up energized and, and it's taken a little bit longer, but it is where you wanted to go.
- [83:40]
Jan Roll
Go say this.
- [83:41]
Will Smith
Hope you enjoyed that interview. Don't forget to subscribe to the Acquiring Minds newsletter. We send an email for every episode with an introduction to the interview, a.
- [83:51]
Connor Gross
Link to the video version on YouTube.
- [83:54]
Will Smith
And soon key takeaways, numbers and more essentials from the interview. For those of you who don't have time to listen or watch it, subscribe at Acquiring Minds. You'll also find all our webinars there on the website, both those we have coming up and recordings of past webinars. At this point, There are over 30 webinar recordings, a wealth of information on all the technical nitty gritty of buying a business. Acquiringminds copy.